Google beats estimates, stock rallies

Internet giant shows strong revenue growth with new ad system

Google CEO Larry Page at the company’s I/O developer conference over the summer.

SAN FRANCISCO (MarketWatch) — Google Inc. shares rallied late Thursday after the Internet company beat Wall Street’s profit and revenue estimates for the third quarter.

Google
GOOG, -1.10%
shares were up nearly 8% in after-hours trading — putting the stock on track to set a new all-time high when the market opens on Friday morning. The company showed solid gains in its core advertising business despite continued pressures from losses in its Motorola division.

The Mountain View, Calif.-based search giant reported a third-quarter profit of $2.97 billion, or $8.75 a share, compared with a profit of $2.18 billion, or $6.53 a share, for the year-earlier period. Adjusted profit was $10.74 per share.

Google soars as revenue tops Street targets

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Google Inc. shares rallied late Thursday after the Internet company beat Wall Street’s profit and revenue estimates for the third quarter. MarketWatch's Dan Gallagher reports.

Analysts polled by FactSet on average were expecting the Internet giant to report a profit of $10.36 a share, on net revenue of $11.7 billion.

Google said paid clicks, the number of times users clicked on the sites ads and generate revenue, rose 26% from the year-earlier period. The company said cost-per-clicks, the prices paid for Google advertising, fell 8% year-over-year and 4% sequentially.

Operating income from Google’s core business jumped 17% to $4.6 billion — offsetting a $248 million operating loss at Motorola. The handset making division also reported a drop in segment revenue of 33% to $1.2 billion compared to last year’s third quarter, despite the launch of the Moto X handset during the period.

Topeka Capital analyst Victor Anthony called Google’s results “a very good print” that was ahead of his forecasts.

“The bear case on the stock was for pressure on search volumes in the quarter, so the 26% paid clicks growth, a three point acceleration from the second quarter, was particularly robust versus expectations,” he told MarketWatch. However, he noted the “further deceleration” in cost-per-clicks, a key metric for Google, which Anthony said was “a bit disappointing.”

“But the recent changes implemented by Google should reverse that trend in the future,” he added.

Analysts were generally expecting a decline in cost-per-clicks of about 5%, while the expectation for paid clicks was for growth of about 22%, said BGC Partners analyst Colin Gillis. But Google’s results showed the company was still wrestling with trends in its ad business, he said.

“They’re growing paid clicks, but people are paying less for them,” Gillis told MarketWatch. “That’s a troubling trend. And this is the quarter where enhanced campaigns are supposed to be helping click pricing.”

Google recently introduced a new system for buying ads called Enhanced Campaigns, which allows advertisers to launch campaigns for both desktop and mobile devices. Analysts expect that system to lead to improved pricing.

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“We view Google’s Q3 results as evidence of the ability of Enhanced Campaigns to reaccelerate ad revenue growth,” Gene Munster of Piper Jaffray wrote in a note following the report.

But Gillis offered a downbeat view, telling MarketWatch, “These guys continue to mint money. [But] when you look a little closer, there are little cracks. Click pricing went in the wrong direction for the second quarter in a row.”

On the call with analysts, Chief Executive Larry Page, who’s been struggling with problems related to his voice, said he will no longer join every earnings call in the future. “I know you would all love to have me on, but you’re also depending on me to prioritize any time for the benefit of the business, and I’m very confident you’re in good hands with Patrick and Nikesh,” he said, speaking of CFO Patrick Pichette and chief business officer Nikesh Arora.

Gillis said, “It’s understandable. Not every CEO has to be on the call.”

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